Book some profit and wait

Retail investors would be a confused lot. Less than a month ago, the BSE's Sensitive Index, or Sensex, had been scaling new highs every week. Yet, within weeks the market fell around 2,000 points. In the past two days, the recovery has again been sharp, after the US Federal Reserve said rate increases wouldn't happen soon.

The Sensex hit an all-time intra-day high of 28,822 on November 28. It then lost 8.2 per cent or 2,353 points in only 13 trading sessions, to hit 26,469 on December 17. And, in two trading sessions, has recovered by three per cent or 1,028 points to 27,497. Earlier, a fall in crude oil prices was seen as a boon. Now, after this is down by half in six months, it is becoming a pain.

In such uncertain times, investors are bound to wonder whether it makes sense to take some money off the table or continue investing or take advantage of the correction by buying more. Experts say the first two can be combined, whereas the third one should be used sparingly.

Says V K Sharma, head, private broking and wealth management, HDFC Securities: "It is a good time to book some profit and sit out for some time. It is also a time to be cautious." He feels the steep fall in the crude oil prices indicates the global economy is not in the best of health. The Russian economic crisis, which has seen the rouble drop 40 per cent in three weeks, isn't helping. In such a scenario, even if the India story is intact, things don't look too rosy for now.

Another worry for analysts is that reforms are happening but are diluted. For example, petroleum is being kept out of the national goods and services tax. "Though the impact of this decision is still not known, it is a bit disappointing," says another analyst.

In such a scenario, Sharma feels taking out 20 per cent of the profit would make sense. "Even if valuations go up a little in the future but the scenario is clear, one can buy stocks a little expensive. Yes, from a five-year perspective, things will be fine. But as of now, there are no triggers to be aggressive," he adds.

Agrees Arun Kejriwal of KRIS Securities: "This is a very crucial time, when you need more nerve to stay in the market. It's also the time to play it by the ear. Book small profits and wait." He says the sudden fall and rise in the past week has shaken the market mood.

Besides booking profit in some mutual fund schemes or stocks, experts say one should continue with systematic investment plans (SIPs). "While making money is important, it is also important that some part of the portfolio in equities should continue to be there. SIPs, for one, should not be discontinued or tampered with," says a consultant.

If you have stayed invested for more than a year or two, even a partial withdrawal is not advisable because such instruments are used for corpus building. Also, given the constant rise in the market during the past year, the SIPs would have garnered lesser units. The recent correction will help them garner more units, which will improve returns in the future.

So, should you buy aggressively to take advantage of the correction? The answer is No. Yet, experts do believe one can use this opportunity to book profits and if there are interesting themes or stocks or schemes, buy these in small quantities. "This is the time an investor has to work harder. While it is okay to continue with regular investments, one has to be smart with some part of the portfolio to make money. Anyway, after a good 30-40 per cent returns just from the index in 2014, the investor is quite unlikely to make more than half that much in 2015. Hence, being a little smart will help," says Kejriwal.